3rd Anniversary of Debt Reduction: $123,000 Down

Authenticity in blog-writing

From day one of writing this blog, I said I wanted it to be authentic. I wanted to give a genuine picture of what it looks like to get out of debt. Much of the debt-reduction advice and testimonial out there has a “Rah-rah!” tone to it, and I’m all for it. Sometimes, I’m leading the cheer. But not today. It’s our third anniversary of debt-reduction, and our numbers show great progress, so what’s my problem?

My disagreement with DH re. accidental TFSA

I feel rather petty admitting to it, but I really wanted to have Debt #3, our business debt, paid off by the end of May. Why? So that we could reach a hugely significant milestone on this anniversary date, and I could write for my title of today’s post, “3rd Anniversary of Debt Reduction: Debt #3 ELIMINATED!” It could have been, but DH and I are in a disagreement, and he is winning. Debt #3 today sits at $5,500, down from an original $80,800. Way down. But still there.

In April 2012, just a month before we started our journey out of debt, we opened up a tax-free savings account (TFSA), and began depositing $101 per month into it. We were floundering at the time, knowing that our finances were in a mess, knowing that we needed to reduce debt and save, but having no strategy. Once we read Dave Ramsey’s The Total Money Makeover, we had our starting strategy:

Have a small emergency fund on hand ($1,000) and take part in any employer matching program that might be offered through your work for retirement savings.

Otherwise, focus exclusively on debt-reduction, starting with the smallest debt, until you are debt-free except for the mortgage.

Save a big emergency fund.

Psychological vs. logical debtors

If the penalties aren’t too severe, advises Ramsey, put any savings you have against your debt. In my mind, that includes an accidental TFSA that has, over the last three years, quietly grown to just about $4,000. We could today cash in, find another $1,500, and Tah-Dah! But here is where our fundamental personality differences come into conflict:

I am a psychological debtor. Ramsey’s assertion that debt-reduction is more about psychology than it is about logic goes double for me. It’s why he advises paying off the smallest debt first. Logically, it makes more sense to focus upon the debt with the highest interest rate, but the encouragement that comes with being able to say, “I did it! It’s all gone!” is worth its weight in gold in terms of the motivation it gives debtors to keep forging ahead. For psychological debtors, encouragement and motivation are everything. Without them, we give up. For me, there would be HUGE encouragement and motivation in being able to say today – on our 3rd anniversary – that we had finally paid off our $80,800 beast of a business debt. It would mean WAY more to me than having a random (in my eyes) TFSA just sitting there on the sidelines sucking momentum.

DH is a logical debtor. It seems counter-intuitive that logic and debt should co-exist, but it’s a common enough phenomenon. Spin the numbers convincingly and make clever use of financial jargon, and many people come to a logical acceptance of debt as normal and benign – never mind sky-rocketing levels of household debt, financial stress, and bankruptcy. For us, it’s fortunate that our smallest debts happened to have the highest interest rates. No argument there. But for this situation, DH logically notes that in the long term, it makes no difference whether we pay off Debt #3 today or in two months from now. A careful man prone to worry, he also logically notes that we have significant expenses coming up, and that a cushion of savings will be a healthy thing to have.

I know that in the long-term, it doesn’t matter if Debt #3 gets killed off in July. The point is, I also feel frustrated by what I perceive as DH’s indifference to what motivates me towards our mutual goal. And I know that we have significant expenses coming up. I just don’t think it would be imprudent to pay off Debt #3 now and then refocus for what’s ahead. I like the neatness of finishing off this phase. I don’t like the sloppy indefinite sense I get with what DH is going for.

So there you have it. It’s the marriage thing and not being on the same page. That’s why I’m not feeling too peppy right now. Nevertheless, here are our numbers:

Start of June 2012: Total Debt = $257,400

Debt #1 New Car Debt – $8,600

Debt #2 Old Car & Course & Dog Debt – $12,800

Debt #3 Business Debt – $80,800

Debt #4 Mortgage – $155,000

End of May 2015: Total Debt = $134,400

Debt #1 New Car Debt – $0

Debt #2 Old Car & Course & Dog Debt – $0

Debt #3 Business Debt – $5,500

Debt #4 Mortgage – $128,900

A total of $123,000 in debt paid off in 3 years.

Looking back and looking ahead

I have just read the post that I wrote almost exactly 3 years ago when we were at the starting line. “Now it’s June, and DH and I are taking the proverbial first step on our journey out of debt,” I wrote. “Psyched by a vision of debt freedom, we feel a happy adrenaline – a hope-filled, united, optimistic energy.” I think that “united” is the key word we’re missing now. Hopefully, our awareness of this fact will lead us to find it again.

The most encouraging thing I get out of that 3-year-old post is what it reveals about our very optimistic expectations: “In preparing our June budget, DH and I found that we didn’t have a lot of fat to trim. That makes sense as we had to take many cuts off our living expenses when DH lost his first career … The most significant change we’ve brought about with our budget is to follow Ramsey’s advice about paying off the smallest debt first – with intensity … With the aim of intensifying our repayment of Debt #1, we’re going to stop paying off the business debt and we’re going to stop topping up our mortgage payments. These two changes mean that we will pay $2,300 off of Debt #1 in a regular month.” Apart from mortgage payments, we had ambitious hopes of a regular debt repayment rate of $2,300 per month. In fact, after three years of widely varying monthly repayments, we have averaged $2,700. We’ve exceeded our ridiculously high expectations by $400 per month, which over three years adds up to $14,400.

So for better or for worse, we’re on the right track. And as I look at the challenges ahead, whether income-related, expense-related, or relationship-related, I can only be encouraged. And, psychological debtor that I am, that’s exactly what I need.

Do you think that psychological or logical factors play a greater role in your personal finances? Your comments are welcome. (And it’s OK if you agree with DH : )

prudencedebtfree

Happy Anniversary and congratulations on the amazing accomplishment! You should be proud of paying off $123K worth of debt! I like to build momentum, I want the small wins to continue to fuel me psychologically to keep moving forward. What about a compromise? Maybe take half of the TFSA to pay off debt and leave yourselves a little cushion too?

I think what’s surfacing here is my impatience – a character flaw I’ve come to realize more and more through this journey out of debt. I’m coming to the conclusion that DH is actually right on this one. Writing this post and reading through the comments has helped me work that all out. Here’s the thing about your idea: If we put $2000 against the business debt, we would still have a business debt, and I’d still be anxious to kill it off completely. Thank you for your idea, Brian.You are a good mediator : )

I think I’m with your husband on this one if I am understanding everything correctly. I AM way more like you, thinking how refreshing it would be to be done, but something that happened, or almost happened to me in the past made me change my mind. When I had to buy a new (used) car, I actually had the cash on hand to pay it. After all, I had ZERO debt, so why would I want to go into debt for it? My friend and voice of reason (also someone like your husband) made a point to me by saying that I get very stressed being cash poor, and what if something like work slowed down for me and I had no money on hand to pay bills. But if I had a low interest debt (this is where our stories differ) then it’s better to pay small amounts and have the cash on hand. Turns out he was dead on and my work stalled and I relied on my savings for MANY months. I can’t imagine what I would have done had that cash not been there. Anyway, food for thought.

Very good food for thought Tonya. DH thought so too. (He actually said, “I knew she would agree with me.”) As I said to Brian, I realize I am too impatient. Patience is a huge part of mastery in personal finances, and it is my biggest deficit. Waiting . . . to purchase, to enjoy, to save . . . even to pay off. So yes, having a good cushion of savings (particularly at this time – which I’ll explain next week) is a very good idea – just as it was for you when you bought your car. Thanks for your honest comment : )

I like your reasoning, Kay! DH got a real chuckle out of this comment : ) In the end, I’ve accepted that DH is right and I’m impatient. A major side-benefit of writing this blog is that it helps me to process things and – in this case – identify my own character flaws. Still, you are always welcome to tell me that I’m right : )

I’m glad you’re being honest here…but at the same time, you have KILLED IT with these debts. An average of $2700/month for three years? WOW. And the last of the business debt will be gone before you know it.

Like Tonya, I’m more like you psychologically, but I still agree with your husband, I think, given your circumstances. When I was in hard-core paydown mode I had all of $0-100 in my emergency fund at any given time. But I justified it because my income was fixed, not variable, and very reliable, and because my expenses weren’t going to get me in trouble: I rented, so no chance of sudden house repairs, and I owned my car outright too. Only a medical emergency could really have done me in. You, on the other hand, do have a house, and dependents (right? at least one kid still at home?) so it’s a good idea to have substantial cash on hand. The debt will be gone in no time and you can have a three-year-and-two-month party 🙂

If you read my response to Tonya, you’ll see that I have come around on this. I appreciate your honest comment, C. You are right about the wisdom for us to have a growing emergency fund. My impatience is the real issue here. And I like your way of thinking outside of the box: A 3-year-and 2-month party is one I would definitely want to be at : )

Hmmm. Tough call. I have the same debate here at my house. I want to save and DH wants to throw everything at the mortgage.
Congratulations by the way. Your numbers are impressive and well, you are both right. (not helpful i know.) You are so close and the cushion could be a good thing to have. Stay the course and when the business debt is gone in a couple of months you will already have some saving momentum going from the TFSA.

May, your comment IS helpful. It’s always a comfort for me to know that other households are having similar debates. When there is only the mortgage left, it’s pretty classic for the woman to want a good emergency fund and for the man to want to kill the mortgage. Dave Ramsey advises men to oblige their wives in this – something you might want to share with your husband : ) I have come around to thinking what you have advised here: another 2 months of staying the course.

Psychology certainly plays a part in debt reduction, and there’s something else going on here that you didn’t mention (but you did in your comment on EnemyOfDebt). Saying your business debt is gone on the 3rd anniversary would have been a great thing to say. Great milestone and on an anniversary? Cool beans. But you and I both know it’s more than that – and maybe you meant to say it but didn’t explicitly write the words – but you really wanted to say “On our third anniversary of our debt payoff journey, we are NON-MORTGAGE DEBT FREE!” x Inside you know it doesn’t really make a difference in the long time whether you pay it off this month, or by the end of summer….but the psychological boost of being able to say that, on this milestone would have been fantastic.

You are right. (And it’s VERY nice to hear from you again.) There is a real separation for me between all other debts and mortgage debt. To be debt-free except for the mortgage will, I think, feel like graduation from high school. There’s still college to go through, but it’s all a new scene and at a new level. I have to let that psychological thrill go – at least for now. In the end, I think DH is right, and it’s good for me to develop my patience and not to count too much on things working out in what I consider to be the ideal way.

Congrats on paying off that much, that’s wonderful! I’m with your hubby, I’m more of a logical debtor. Although I know that psychology can have a profound impact on paying off debt overall, so I don’t think that either strategy is wrong. Whatever works and allows you to keep trucking away at reducing your debt 🙂

“Whatever works” is definitely true about personal finances. There is not one way. But in the end, I’ve accepted DH’s point of view. I have a tendency to max out. It used to be on spending, but now it’s on debt-reduction. I lack the measured steadiness that balances savings with debt-reduction, and that’s what’s called for at this time for us. I’m still learning! Thanks for your comment : )

I think disagreements in a unified marriage are healthy. My husband and I recently disagreed about how to pay for my ER visit. He is more a fan of cash shuffling whereas I want to specifically budget it. It’s little compared to debt, but the discussion was healthy for us.

Thanks for you comment, Hannah. A recent visit to ER? I hope that you are doing well now. It’s true that communications about personal finance will always come with a chance of disagreement – whether the focus is debt-reduction vs. savings or how exactly to fund an expense. The point is, communication is happening, and that’s a good thing. All the best as you recover full health.

I can see both sides (which is often the case and I suspect tends to make me indecisive!). You indicated you’ve come around to your husband’s point of view, and in this case, I tend to agree. It seems wise to keep some money in savings. However, I do see the appeal of saying that you paid off your non-mortgage debt 3 years after starting your debt repayment journey. But to echo what has already been said, 3 years plus a little is still really great. 🙂 I think the most important thing is that you’re still moving forward together, even if you don’t always see eye to eye on the details. I agree also that paying off an average of $2700 per month is impressive; all of the debt you have paid off already is a major accomplishment!

Thank you, Jennifer, and I’m glad you see both sides – even if, like everyone else (except for Kay : ), you think that DH has the right idea. I have come around as you say. I am not good at saving. I just don’t get excited about it the way I do about paying off debt. The only charge I used to get out of finances was in spending them – so if I can learn to get thrilled about debt repayment, I can learn to get thrilled about savings. Always learning. Thanks for your comment : )

I’m on the same page as you, I will squeeze the budget to pay off that last little bit of debt early and see it gone. Mr Tre needs the security of seeing money in a savings account. Sometimes it is difficult to find a middle ground.

You and I are in exactly the same kind of marriage dynamic, it seems. It is so important for couples to work at their finances together and for each to understand and respect where the other is coming from. Thanks for your comment, Tre : )

I understand you came around to your husband’s side on this, and I’m glad if that means you’re more at peace. Maybe, if part of the problem was you perceiving him to be indifferent to your motivations, he could oblige you in some other matter. Maybe it doesn’t really matter that much what it is, you’ll decide what movie to watch, he’ll take a kid to the dentist instead of your or whatever. It might help you to feel like you’re not the only one compromising. And you could remind yourself of the times where he was the one obliging you in some way.

Maria, that is so wise. So much of this effort to get our financial house in order has to do with all the subtleties of relationship and communication. I’m going to share your comment with DH. I’m pretty sure you’re on to something. Thanks : )